President George Bush will acknowledge on Monday that a slowing United States economy will lead to a higher budget deficit this year and next, as he unveils a $3-trillion fiscal 2009 spending plan that would boost military funding but nearly freeze many domestic programmes.
Bush will project budget deficits of about $400-billion for both fiscal 2008 that ends on September 30 and fiscal 2009, according to a US official who spoke on condition of anonymity. The budget situation will be inherited by the next president, who succeeds Bush in January 2009.
A deficit near $400-billion would be more than twice the $163-billion shortfall recorded in 2007.
It would also approach the $413-billion budget gap of 2004, which was a record in dollar terms, although the Bush administration emphasises the deficits in the next few years would likely be around 2,8% of gross domestic product — not far from the historical average.
With the economy possibly teetering on the brink of a recession, revenues are expected to suffer, reversing a trend of the past three years in which annual deficits declined.
A promised $150-billion stimulus package of tax rebates will add to the deficit, at least in the short term, and funding for the Iraq war is another source of red ink.
”The economy is suffering a significant cyclical setback,” said Ed McKelvey, an economist with Goldman Sachs in New York. ”The numbers will probably show a pretty big deficit.”
The gloomier budget forecasts will come in a budget blueprint for next year that would rein in spending on programmes from home heating-oil assistance to healthcare.
While many — if not most — of the priorities of the Bush budget will be jettisoned by the Democratic-led US Congress, the unveiling of the document is sure to trigger a new round of sparring over Bush’s fiscal policies and his economic legacy.
‘Fiscally irresponsible’
”This president will be known as one of the most fiscally irresponsible in history,” Senate Budget Committee chairperson Kent Conrad, a North Dakota Democrat, told Reuters in an interview.
”He is taking a shot at the middle class,” said Conrad, referring to proposals expected to be part of the budget, such as cuts in a programme to help the poor pay their heating bills and suggestions for reining in the Medicare health programme for the elderly.
Bush has taken heat even from some of his fellow Republicans for allowing spending to rise sharply on his watch, but with the arrival of a Democratic-led Congress last year, he has emphasised a tougher approach on spending and vetoed several budget Bills last year.
Conrad said even more worrisome than the higher annual deficits was a jump in the national debt to $9-trillion from about $5,6-trillion when Bush took office in January 2001.
Interest on the debt will total $234-billion this year, according to the Congressional Budget Office. That is higher than the $193-billion in spending Bush has proposed for the Iraq and Afghanistan wars for 2008.
Bush’s budget will propose curbing spending on federal health entitlements by $208-billion over five years, with the bulk of the savings sought from Medicare.
In fiscal 2009, the budget would nearly freeze spending on discretionary programmes outside of national security.
Amid a clamour from many in Bush’s Republican Party for a crackdown on illegal immigration, the budget will propose $775-million for more border fences, $440-million to hire and train more border patrol agents and $3-billion for other enforcement activities.
Spending on the military and the Iraq war will be the centerpiece of the Bush budget, as it has been for several years. Bush will propose $515,4-billion for the Pentagon for fiscal 2009, up 7,5% from the funds Congress approved for this year, according to documents obtained by Reuters.
Bush will ask Congress for $70-billion for the wars in Iraq and Afghanistan. That request, far less than the nearly $200-billion Bush sought for 2008, is expected to fund the war for only part of fiscal 2009.
Administration officials say they are making only a partial-year request for the 2009 war funds because Congress has only approved part of Bush’s request for 2008. Democrats say that by failing to spell out fully the expected costs of the war, the administration is understating the true impact of the Iraq conflict on the budget. – Reuters